Metrics and Milestones Health Investors Want to See
Find out the key metrics and milestones health investors look for when assessing an investment opportunity. And hear a favourite question that one investor likes to ask entrepreneurs.
Brenda Irwin, Managing Partner, Relentless Venture Fund
Damian Lamb, Managing Director, Genesys Capital
James Hardiman, Partner, DCVC
Scott Kaplanis, Partner, Epic Capital Management
Transcript with timestamps (click here)
What are the key metrics and milestones you look for when investing? Brenda Irwin, Managing Partner, Relentless Venture Fund [00:10]
I’m an early-stage healthtech investor. So the types of metrics and milestones that I’m personally interested in relate to the amount of bootstrapped capital that an entrepreneur has been successful in raising to at least show some initial proof of concept or initial product development and ideally identified some strategic partner—even just to collaborate from a product development or a business evolution perspective.
It’s tough to find for early-stage investors. But part of the challenge as well as the opportunity is I want to work with early-stage health entrepreneurs, that they have to show up with something specific around what they have that’s unique, that doesn’t otherwise exist in the market—versus the idea. I’m not investing in the ideas. I am investing in actual assets that may be initial intellectual property, it could be a prototype. I’m very comfortable working with early-stage entrepreneurs as long as they can show me something specific that they have that’s investable.
Damian Lamb, Managing Director, Genesys Capital [01:13] When we’re invested in life sciences companies, as opposed to technology where you are prototyping and relatively rapidly bringing a product to market, we’re looking for risk-reduction milestones. So if you’re driving programs through clinical development, you know, safety, toxicity, efficacy, proof of concept, the earlier you can establish those metrics and those milestones, the more confident you can become and put more capital into those companies and drive them towards X and towards market.
And in medical technology, it’s the same. Although the process of getting those products to market is slightly more rapid. You might not have as many clinical trials or as in-depth clinical trials. But you still are trying to drive clinical metrics and clinical milestones to reduce the risk to get confidence that the product you’re ultimately trying to develop is going to meet an unmet medical need in the marketplace. And usually, when you do that, you can generate return on investment.
James Hardiman, Partner, DCVC [02:09] I think the metrics and milestones that biotech companies need to achieve are actually pretty straightforward and more defined. And they’re very concrete. So you either achieve those milestones or you haven’t.
And when I think about these, I tend to think about them and kind of the regulatory and clinical development process. So the first milestone is usually in vitro and in vivo studies. Usually what I would expect to kind of a seed round to accomplish and someone to show up with have some early evidence that this might work. The next milestone tends to be an IND [Investigational New Drug]-enabling study. So usually the first part of a series A may go to putting together the IND package that you would take to—again this is in the U.S.—to a regulatory body that would approve the use of the product to move into the clinic and studies with humans.
And then the ones that people are more familiar with are probably the phase 1, phase 2 and then phase 3 clinical studies. So each of those, I think, represent value inflection points for the company. And so if you’re able to achieve them or demonstrate success at each of these, value accrues of the company. And if you’re not, then you effectively haven’t accomplished anything since the last round. That’s how I think about milestones and therapeutic development.
Scott Kaplanis, Partner, Epic Capital Management [03:22] I think there’s tends to be some intimidation about working in the healthcare space. But in actuality, the metrics that we look at would be the same metrics in general that most traditional technology venture capital firms would look at—starting with things like the total addressable market and then moving to how do you actually attack that market? How are you successful within that market? What’s the value of a customer when you actually get that customer? The lifetime value of that customer? And what is the cost to acquire that customer (so that’s the cost of acquisition)?
These are very typical metrics that are used across the technology world. Especially true in health IT and in digital health, we will look at exactly the same metrics in making a determination. We will look at recurring revenue, ARR, MRR (that’s annualized recurring revenue or monthly recurring revenue).
And I’d say the only nuances when you’re looking into the drug development space or the medical device space or the diagnostic space, you still take that general approach: total addressable market and how do you attack that market? How do you compete within it? But you’re going to layer on—some additional requirements will be understand the regulatory pathways and the hurdles that you need to go through to actually get your product to market. So it tends to be a little bit harder to get to market, but you’re really still looking at all the same things at the end of the day.
What’s your favourite question to ask a founder in your first meeting? Brenda Irwin [04:41] My favorite question to ask a founder is, “why did you start the business in the first place?” And it’s such a simple question, but it shares, you know, the way an entrepreneur answers that question to me will often be quite telling in terms of, “did I want to start a business and get, you know, get rich?” Or was there a family? I mean, we’re in health, I’m a health investor. So a lot of time there is a very personal story. I actually want to hear that story.
So I do enjoy asking that question. It’s rarely the first question I ask. I tend to, kind of, get down to the “just tell me the most important stuff.” I’m impatient to that way in terms of, “convince me like in the first five minutes that this is an investable opportunity as an early-stage investor, and then I will ask them what they think the biggest risks they have facing outside of capital raising. That is a question that not very many entrepreneurs want to answer candidly. I have a lot more respect for an individual who I’ve just met if they can be vulnerable and share with me what the risks are and how they’re going to manage those risks.